<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ____________
Commission File No. 001-14297
---------
MW Medical, Inc.
----------------
(Exact name of Registrant as specified in its charter)
NEVADA 86-0907471
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6617 N. Scottsdale Road, Suite 103,
Scottsdale, AZ 85250
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (480) 483-8700
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the
Act: 100,000,000 shares of common stock
Check whether the issuer (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days. [ X ] Yes [ ] No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in
this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form
10-KSB. [ ]
Revenues for 1999 were $0.
The aggregate market value of the voting stock held by non-
affiliates computed by reference to the last reported sale
price of such stock as of December 31, 1999 is $51,537,471.
The number of shares of the issuer's Common Stock
outstanding as of December 31, 1999 is 18,324,434.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE>
PART I
Item 1. Description of Business
MW Medical, Inc. is in the business of designing and
developing microwave technologies for dermatological
applications through its wholly owned subsidiary, Microwave
Medical Corporation, a California Corporation. Unless
specified otherwise, throughout this discussion, MW and
this subsidiary will be referred to interchangeably as MW.
Principal Services and Products
MW is engaged in the development of technology relating to
the use of microwave energy for medical applications. In
January of 2000, the US Patent and Trademark Office issued
a patent to MW entitled, "Method and Apparatus for Treating
Subcutaneous Histological Features," which focuses on the
application of microwave energy in the treatment of spider
veins and for use in hair removal. The use of microwave
for hair removal is based upon the selective heating of
hair follicles while cooling the surface of the skin for
its protection. The hair follicle is the tissue around the
hair which promotes the growth of the hair. MW has used
computer modeling and laboratory studies to optimize its
system for hair removal. Studies have shown effectiveness
in destroying hair follicles while maintaining the
integrity of the skin surface.
Phase III clinical trials for hair removal were completed
in April 1999 to prove safety and efficacy in the use of
the product. MW then submitted the results to the FDA on
April 22, 1999. On October 25, 1999, the FDA granted MW
approval to begin marketing its microwave hair removal
device for non-facial hair removal.
MW's plans to complete its development of a microwave
therapy system that incorporates the technology described
in its patent application for the treatment of
Telangiectasia, or, spider veins as a follow up to its hair
removal treatment. Spider veins are thread-like red to
purplish veins that stem from a network of small veins just
below the surface of the skin. Spider veins develop more
predominantly on the legs and faces of women. The female
hormone estrogen usually causes these problems. At this
time, injection and lasers are the predominant treatments
for this condition.
MW launched its microwave system for hair removal at the
end of the fourth quarter of 1999.
MW's systems use microwave energy delivered to various
target structures within the body to induce highly
controlled hyperthermia. This condition enables our systems
to induce a change in a person's tissues to produce the
desired cosmetic or therapeutic affect.
The nature of the technology, high frequency Rf energy
delivered under highly controlled conditions, requires us to
research, design and develop unique components. These
2
<PAGE>
proprietary components are then incorporated into systems
using other mechanisms from a variety of suppliers. Although
MW makes an effort to reduce dependence on single source
suppliers, there are some components that MW has jointly
developed with others who MW is contractually or practically
obligated to work with on an exclusive basis.
MW builds its devices based on a forecast of future sales
and then inventories its products. Its build, configuration
and test process requires certain system adjustments and
final testing for each order. MW's objective is to ship
sales orders within 14 days of final order approval.
However, MW relies on a variety of suppliers for key
components and services, and therefore delivery capability
is dependent on these outside suppliers capacity and lead
times.
MW's expertise is in the precise delivery of microwave
energy to targeted tissue in whichever application the
system is operating. It's product development efforts
require basic research, design engineering, clinical
investigation and manufacturing engineering. The final
product must not only work as designed technically, it must
be clinically effective and commercially viable. Although,
some of these efforts are within the Company's control and
expertise, MW operates in a highly regulated industry. As a
result, government regulatory bodies will often determine
it's products availability to the market.
Multi-Platform Device
One of the Company's strengths is the multi-platform
nature of its device, comprised of a versatile amplifier
and interchangeable delivery devices. Using this platform,
MW believes it can produce a family of devices to meet
customer expectations for economy, performance and
efficiency and patient needs for safety and efficacy.
The core microwave system is capable of producing energy at
frequencies and pulse durations which should provide
clinical utility in a variety of aesthetic and therapeutic
procedures. Although specific system configurations are
not yet determined, by modifying accessories, rather than
the microwave system for each indication, MW can and may be
able to provide cost-effective solutions for users while
building economies of scale in its manufacturing processes.
Recent Approvals
In January 2000, the US Patent Office issued a new patent
for its microwave delivery system, entitled, "Method and
Apparatus for Treating Subcutaneous Histological Features".
This patent focuses on a system and method for treating
subcutaneous histological features without affecting
adjacent tissues adversely by employing microwave energy of
selected power, frequency and duration to penetrate
subcutaneous tissue and heat target areas with optimum
doses to permanently affect the undesirable features. The
frequency chosen preferentially interacts with the target
areas as opposed to adjacent tissue, and the microwave
energy is delivered as a short pulse causing minimal
discomfort and side effects.
3
<PAGE>
On October 25, 1999, MMC's microwave system for non-facial
hair removal received written approval from the U.S.
Department of Health and Human Services, Food and Drug
Administration (FDA) to begin marketing. The device has
been classified into Class II (Special Controls). MW may,
therefore, market this device subject to the general
control provisions of the Act, including requirements for
annual registration, listing of devices, good manufacturing
practice, labeling, and prohibitions against misbranding
and adulteration, and the additional controls mandated by
the Class II classification.
Telangiectasia (Spider Veins) Treatments
In May 1999, MW received Investigational Review Board
approval from Independent Review Consulting, Inc. to
conduct Phase II clinical trials for the treatment of
spider veins (telangiectasias) in the legs using MW's
microwave delivery system. Since this phase of the
clinical trial is nearing completion, MW is preparing an
Investigational Review Board submission for the next Phase
of testing. With
sufficient data, MW expects to proceed with an FDA
submission for this application.
Orbital Facial Wrinkles
MW believes that its microwave technology may provide a
treatment for facial elastosis, or facial wrinkles. This
condition exists widely in certain age groups with the
financial means and motivation to correct the condition.
The market opportunity is of significant interest to the
Company because the market exists, the providers of current
solutions are part of our current target market and our
technology may offer benefits not currently available with
other modalities.
In September 1999, MW received IRB approval for a pilot
study to treat orbital facial wrinkles as an alternative to
laser therapy and chemical peels. This is high-demand
elective procedure that, as currently performed, requires
dedicated equipment and long patient recovery periods. MW
believes it's technology may perform non-ablative heating
of the dermatologic structures to provide a clinical
improvement in the appearance of facial wrinkles. However,
there can be no assurance that such results will
materialize upon testing.
Striae (Stretch Marks) Treatments
MW believes that its microwave technology may provide a
treatment for striae or stretch marks. This condition
exists in certain groups who currently have limited
treatment options. Additionally, both providers and
patients are motivated to secure a reliable effective
treatment. The market opportunity is of significant
interest to MW because our technology may offer a highly
unique clinical solution to this condition.
In December 1999, MW received IRB approval for a pilot
study to treat striae or stretch marks due to scarring.
Currently, although significant demand exists, there is no
widely accepted treatment for this condition.
Theoretically, MW's technology might provide at
4
<PAGE>
least a cosmetic improvement in the appearance of striae.
However, there can be no assurance that such results will
materialize upon testing.
Additional Clinical Uses
While MW Medical continues to pursue its target markets of
non-invasive aesthetic clinical procedures, the versatility
of the technology makes other therapeutic opportunities
appear viable. MW is evaluating several of these
therapeutic uses of microwave energy, including oncology,
urology, gynecology and cardiology. MW continues to
investigate the economics and development implications of
these applications.
Aesthetic Industry
In the United States, according to analysts reports
(source: Smith Barney), 1 million women are customers of
electrologists, spending an average of $1,000 per year on
an average 27 procedures. A further 80 million women spend
an additional $500 million on depilatory products such as
shaving, waxing, and other accessories.
As per the above, the current U.S. market is around $1.5
billion for such services. The market size in Japan has
been estimated at over $1 billion, and other world markets
taken together may account for a similar figure. Huge
potential exists in the Japanese markets for microwave hair
removal where their cultural aversion to body and facial
hair is stronger than for any other ethnic group. To date
there has been no noninvasive hair removal technology that
satisfies this population. The reason for this stems from
the Asian skin type which is extremely prone to hyper-
pigmentation (darkening of the skin) when treated by a
laser whose only mechanism for hair removal is melanin
absorption. Microwave hair removal has no effect on melanin
making the risk of pigmentary changes virtually non-
existent.
There are two ways of looking at the U.S. market for
potential hair removal: treatment at a salon, the way it is
done at present through waxing and electrolysis: or
treatment by a physician, where the laser treatment will be
performed either by a dermatologist or a cosmetologist
working under a physician's direction. To date, however,
hair removal lasers have been sold primarily to physicians.
We believe that there are several reasons for the lack of
acceptance of laser hair removal by the electrologists.
First, they are already trained in electrology and can get
hair clearance rates of up to 90% (albeit after several
painful, and tedious treatments). Second, they see laser
hair removal clearance rates as being too low - with the
end result being temporary hair removal in many cases.
Lastly, they are uncomfortable and ill-equipped to deal
with the undesirable post operative side effects associated
with laser hair removal including: textural changes,
scarring and transient, hyper-pigmentation (darkening of
the skin), and hypo-pigmentation (lightening of the skin).
As a result, there is an untapped market of 24,000 to
26,000 beauty care salons or spas (19,000 - 20,000 self
standing) and 11,000 to 15,000 electrologists operating
either on their own or as part of a beauty/skin care salon.
5
<PAGE>
Leg Vein Market
Up to 80 million adults in the U.S. alone are affected by
unwanted leg veins. It has been estimated that 29%-41%
of women and 6%-15% of men worldwide have abnormal
leg veins. Most vessels presented for treatment are less
than 1 mm in diameter, although varicose veins range from
under .3 mm to over 3 mm in diameter. Currently, the
treatment of leg veins using conventional sclerotherapy is
estimated to be a $1 billion annual worldwide market.
Sclerotherapy is a largely successful approach, but one
that is often unpopular. The technique has a success rate
of over 90%, but is difficult to administer for small
vessels and has significant attendant adverse sequellae. As
a consequence, optical techniques, with their promise of
noninvasive and easy to administer selective therapy, are
considered highly desirable by both patient and physician.
A viable, truly effective technique may be poised to assume
up to 50% of the practitioners annual $1 billion
sclerotherapy revenues. If ultimately successful, the
microwave technique may expand the original sclerotherapy
market. Those practitioners who have had unacceptable
cosmetic results with current laser and pulsed-light
devices would be good candidates to buy MDS as a
replacement technology for this market. It is estimated
that there are 1,500 lasers installed worldwide for the
purpose of treating leg veins.
As is the case with hair removal, the Asian markets offer a
particularly strong potential market for MDS. Although leg
vein lasers use wavelengths that target blood they still
have strong absorption in melanin creating an unacceptably
high risk of hyper-pigmentation. Microwave technology
presents no such risk giving MDS an advantage in this and
other international markets with predominantly dark-skinned
populations.
Stretch marks
Stretch marks are common in many healthy women and men and
often occur during puberty or during pregnancy. They can
be seen following a rapid weight gain or loss, in weight
lifters as well as in Cushing's disease or debilitating
infections. It is estimated that unwanted stretch marks
plague 80 - 100 million people in the U.S. alone and double
again that number internationally. The equipment market
for stretch marks is conservatively estimated at $250 to
$350 million or potential unit sales of the pulsed dye
lasers were originally sold as medical (as opposed to
cosmetic) devices designed to treat port-wine stains, and
other vascular abnormalities covered by health insurance.
It is estimated that there are 4,500 pulsed dye lasers
installed worldwide. The results from the laser technology
has been disappointing, as is the case with leg veins, it
offers sub-optimal results (20% to 30% clearance at best),
with a high potential for pigmentary, textural changes,
scarring, and purpura. As a result, the treatment is
rarely performed and the market awaits a new technology
that offers acceptable cosmetic results without all the
undesirable side effects attendant with pulsed dye
technology. The potential market for MDS at an average
selling price of $93,000 is conservatively estimated to be
between 2,000 to 3,000 units.
6
<PAGE>
Resurfacing
The resurfacing market is more mature than the above
mentioned markets with over 6,500 lasers installed
worldwide. Yet wrinkles remain the most lucrative of all
cutaneous procedures because everyone has them and billions
of dollars a year are spent trying to remove them. The
current focus is on finding a noninvasive way to remove
wrinkles not by "sanding", "vaporizing" or otherwise
removing tissue such that the ridges of wrinkles are
debunked to conform to the valleys, but to "bulk up" the
valleys to conform to the ridges. This offers a facelift-
type cosmetic result, strengthening instead of thinning the
skin without creating an open wound. If collagen synthesis
using microwave therapy were successful, it could replace
invasive procedures currently performed by plastics
surgeons and dermatologists including some face-lifts,
collagen injections, and goretex implants in the lips and
naso-labial folds - a large potential market. This would
amount to the creation of a whole new treatment modality,
significantly broadening worldwide market penetration among
the 156,500 potential physicians/users.
Competition and Marketing
The worldwide annual market for dermatology/cosmetic
equipment sales presents a tremendous opportunity for
business development. This is the result of the medical
community's need for elective (private pay) income to
offset declining managed care mandated fee cutbacks. This
has propelled the development of the burgeoning aesthetic
surgery market.
MW primarily markets its microwave technology in the
cosmetic dermatology market. In recent years, there has
been a substantial upsurge in the demand for non-surgical
cosmetic procedures in the treatment of spider veins and
removal of hair. Market interest has been largely fostered
by the introduction of laser technology for use in cosmetic
dermatology.
MW plans to compete with laser devices in North America and
the European Community. MW's competitive advantage is
expected to be based on price, safety, hair and skin color
range and effectiveness. The end user price is expected to
be in the range of $95,000 to $100,000, which is 25 to 35
percent below the current cost of the equivalent laser
systems. In addition, laser technology cannot be applied
well in individuals with dark skin and does not effectively
cause hair removal in individuals with light colored hair.
These limitations are the result of absorption of laser
energy by specific pigments in the skin and hair. In
addition, the efficacy of laser systems for spider veins is
below optimal, in most cases requiring 3 to 5 treatments to
achieve an acceptable result. Based upon MW's clinical
studies to date, these limitations are not expected.
MW's principal competitors are Candela Corporation and ESC
Medical Systems Ltd. Both companies sell, among other
things, laser systems used for hair removal and the
treatment of spider veins.
7
<PAGE>
Marketing Strategy
MW hopes to attain prominence as a market leader through a
carefully constructed marketing program encompassing the
following components:
Public Relations:
The most effective way to launch a new technology into the
cosmetic market is through an aggressive, well timed, PR
campaign in the popular print and broadcast media.
Editorials in the health and beauty journals (Cosmopolitan,
Vogue, Allure, etc.) and televised national and local news
broadcasts (local news medical segments, national news
segments, and news magazine programs i.e., 20/20)
announcing this breakthrough, patent pending, noninvasive
cosmetic technology will be powerful. Physicians will be
interviewed attesting to the fact that microwave technology
is much safer, more effective, and better tolerated than
existing technologies for these indications. All of this
media exposure creates patient driven demand and compels
the physician to buy the device and offer microwave
cosmetic treatments or lose the business to someone else.
This strategy requires the retention of a well connected PR
firm during the product introduction period and must be
timed to coincide with targeted journal advertising, direct
mail, and trade shows. The video tapes and reprints derived
from this campaign provides some of the most compelling
marketing material that can be used to both sell the device
to the Physician and as patient information to sell the
microwave treatment.
Journal Advertising:
Advertisements placed in medical specialty journals will be
evaluated based on the following criteria: those journals
most frequently read by the target audience, editorial
content, advertising to editorial ratio, and cost to reach
each reader. Based on these factors, there are 7 leading
publications in the specialties of Plastic Surgery,
Cosmetic Surgery, and Dermatology that will provide the
best coverage for the cost. For maximum impact, the ads
will be timed to coincide with specific events and special
issues.
Direct Mail:
An efficient and cost effective method of generating leads
is through direct mail advertising. Most of the cosmetic
surgery societies make their mailing lists available to
manufacturers for a fee. Through regional and specialty
focused efforts, MW Medical will maintain a consistent
stream of new interest in the microwave system.
Trade Show Attendance:
One of the most cost-effective methods of reaching a large,
focused, audience is through trade show participation.
Throughout the year, MW Medical will attend approximately 8
trade shows, reaching several thousand physicians in this
manner.
8
<PAGE>
Specialty Microwave Workshops and Seminars:
Participation in hands-on courses directed at small
participant groups is an important educational and sales
opportunity. MW Medical will attend and/or sponsor
approximately 20 such meetings each year to expose
physicians from different specialties to its microwave
system. The Company sales representative sponsored training
seminars will feature several experts to present on the
"surgical microwave science", the "clinical applications of
the MW Medical Microwave Delivery System", financial
analysis and finance programs. In addition, a device will
be on the premises for the attendees to see, and a hands-on
treatment with a live patient will be performed. Attendance
varies but with a new technology usually ranges from 40 to
90 physicians.
Clinical Presentation:
The Company expects to have many clinical sites with noted
doctors and institutions representing and documenting its
differing therapies. A sales book will be provided to all
sales representatives. It will contain all clinical data
attesting to the safety, efficacy, and patient treatment
tolerance including: abstracts, white papers, reprints from
medical journals, and before and after images. The book
will also contain all other related material, such as:
reprints from the popular press, a comparison matrix and a
physician reference list.
Observation of a Patient Treatment:
All physician prospects will have the ability to observe a
patient procedure at the office of one of our preceptor
physicians. In this way they can get the story from one of
their peers as opposed to a sales representative. They will
also have the chance to query the patient on how well they
tolerated the treatment. Observing a patient procedure also
obviates the need to make a demo unit available to the
sales representatives.
Creating Physician Advertising Materials:
Consumer marketing is becoming an increasingly crucial goal
in cosmetic surgery. Cosmetic surgery patients are
consumers who have treatment choices and physicians have
begun to recognize the need to compete for their dollars.
This fact is amply illustrated by the number of companies
being utilized by physicians to help market their
practice's. By providing this value added service, MW
Medical gives the physician one more reason to purchase.
Toward this end, MW Medical will provide a practice
enhancement kit titled "Your Link to The Local Media". The
material will include a media relations kit; a sample pitch
letter: a sample press release, copy for 20, 30, and 60
second radio spots; cosmetic microwave surgery fact sheets;
sample advertisements; consultation materials; patient
brochures; image enhancement ideas; a patient video tape
and more for physicians to use in furthering their
professional image and generating patient interest.
Additionally, these materials can be very effective in both
branding the product (i.e., the MW Medical Dermawave
treatment) and spreading the word.
9
<PAGE>
It is well established in the medical community that one of
the most effective sales strategies is to let surgical
luminaries and opinion leaders sell your equipment for you,
since physicians will believe the opinion of their peers
more readily than the word of a salesperson. As medical
practitioners tend to be highly reliant on published data
and anecdotal recommendations of their peers, MW Medical
has selectively distributed microwave systems for clinical
trials to the offices of these practitioners. Specifically,
double blind test studies comparing microwave to laser and
pulsed light treatments for clinical efficacy, risk of
undesirable side effects, recovery time, and patient
preference are being performed.
To ensure optimal market penetration and better brand
recognition, these opinion leaders will be expanded to
include physicians of different specialties and in
different geographic regions. The following sub-specialties
will be targeted: Dermatology, Plastic Surgery, ENT Facial
Plastic Surgery, Ophthalmology, and G.P./Family Practice.
The market strategy will be specific to the geographic area
in which the product is being introduced. MW has focused on
two marketing strategies for its hair removal product: (1)
selling or leasing the product to physicians and other
health-care practitioners, and (2) fee sharing in which MW
arranges for financing of the product and takes some
percentage of the revenue generated through the use of the
product. Moving forward MW will be adding in-house direct
sales and will implement training and certification
programs, for its sales organization and its end user. The
Company finds this critical since the sales force in the
marketplace, while having competent laser sales knowledge,
has little understanding of microwave technology and
delivery systems.
The primary customers for the hair removal product are
physicians and other healthcare practitioners specializing
in cosmetic surgery and dermatology. In the U.S. alone, it
is estimated that there are approximately 25,000 cosmetic
surgeons and dermatologists. In addition, other physician
specialists such as family practitioners, gynecologists,
and surgeons have incorporated cosmetic dermatology into
their practices.
The world wide market for the treatment of spider veins and
hair removal is estimated to be $5 billion. New
technologies will make up 25% of this market through the
year 2002.
To date, MW has concentrated its marketing and sales
efforts in the United States.
Employees
MW's eleven employees consist of its President, Chief
Operating Officer, Director of Sales,
Secretary/Financial Officer, electrical/microwave engineers
and microwave technicians. By the end of 2000, MW is
expected to have twenty full-time employees. Expansion
will coincide with sales of MW's product. Independent
companies and persons under the supervision of MW currently
conduct manufacturing and assembly. None of the employees
of MW or its subsidiaries are subject to collective
bargaining
10
<PAGE>
agreements, nor have they been on strike, or
threatened to strike, within the past three years. MW and
its subsidiaries have no supplemental benefit or incentive
arrangements with their employees other than health
insurance coverage and MW's incentive stock option plan.
Patents and Trademarks
The success of MW substantially depends upon its microwave
technology for use in cosmetic dermatology. MW has
recently obtained a patent entitled, "Method and Apparatus
for Treating Subcutaneous Histological Features," which
focuses on the application of microwave energy to the
treatment of spider veins and for use in hair removal. MW
has no other patent, trademark or intangible property. It
does, however, have several other filed patents pending.
Research and Development Expenditures
During the 1998 and 1999 fiscal years, the following
amounts were spent by MW on research and development
activities:
Year Ended Year Ended
December 31, 1998 December 31, 1999
----------------- -----------------
MW $ 569,738 $ 678,162
Corporate Organization and History
MW is a Nevada corporation that was incorporated as a
subsidiary of Dynamic Associates, Inc. on December 4, 1997.
On February 26, 1998, MW entered into an agreement with
Dynamic in which MW issued 14,223,929 of its common shares
to Dynamic in consideration for:
(a) all of the issued and outstanding shares of P&H
Laboratories, Inc., a California corporation ;
(b) all of the issued and outstanding shares of MMC and
shareholders loans to MMC in the amount of $2,169,806; and
(c) the agreement of Dynamic to pay to MW a total of
$200,000. The obligation of Dynamic to pay the sum of
$200,000 is evidenced by a promissory note dated February
26, 1998. Dynamic made a payment of $50,000 toward this
obligation in March of 1999, making the current principal
amount of the debt $150,000.
Dynamic then transferred all shares of MW to the
shareholders of Dynamic through a distribution completed on
March 11, 1998. Each shareholder of Dynamic received one
common share of MW for each common share of Dynamic held by
the shareholder. The
11
<PAGE>
shares of MW distributed by Dynamic constituted all of the
issued and outstanding shares of MW at the time.
MW sold the business of P&H under an asset purchase and
sale agreement dated March 9, 1998 between P&H and
Microwave Communication Corporation, a California
corporation. Under this Agreement, MW, through P&H agreed
to sell to Microwave all of the assets of the business of
P&H as a going concern. The sale of assets by P&H to
Microwave was completed on May 6, 1998. MW received the
following consideration on closing:
(a) cash consideration of $160,943;
(b) a promissory note issued by MCC/ Ferro Systems, Inc., a
subsidiary of Microwave, whereby MCC/Ferro agreed to pay to
P&H the sum of $250,000 on August 1, 1998 and the sum of
$243,125 on March 31, 1999. P&H has assigned this note to
MW;
(c) the agreement of Microwave to provide to MMC 1200 hours
of microwave related services for the period to April 1,
1999, subject to a maximum of 100 hours per month;
(d) office space for the business of MMC at MCC/Ferro's
facility in Simi Valley, California until February 28,
1999.
The obligations of MCC/Ferro under its promissory note are
secured by a general security agreement against the assets
of MCC/Ferro and the guarantee of Microwave. The general
security agreement is subordinated to a bank financing
arranged by MCC/Ferro to pay-out P&H's bank financing and
pay the amounts owed.
Before disposition of its business, P&H was involved in the
business of manufacturing microwave components and
subsystems for the communications and aerospace industries.
The devices included isolators, circulators, power monitor
devices, filters, diplexers, switching diplexers,
multi-junction circulators, microwave subsystems and
integrated packages and subsystems. P&H is currently
inactive because of the sale of the assets comprising its
business.
Marketing Plans
As a medical device company with a new technology, delivery
mechanism and clinical technique, MW is pursuing an
educational marketing program followed by a promotional
effort in the appropriate markets. As its customers are
medical professionals, MW is attempting to reach these
markets through targeted campaigns to inform buyers about
its new technologies. MW plans to use electronic media and
web-based applications for this purpose. Additionally, MW
plans to exhibit and offer promotions at influential
industry congresses and events.
12
<PAGE>
Marketing
MW's marketing focus in the third and fourth quarter of 1999
was to introduce the MW2000 and it's microwave technology to
the hair removal marketplace. The Company attempted to
accomplish this primarily through national and local
trade shows as well as through individual efforts of sales
personnel. It was the Company's hope that this would set
the ground work for generating future sale revenues.
During 1999, the Company expanded its outside sales force
by contracting with several independent sales
representatives and four major distributors. The Company's
outside independent sales personnel grew to 35 in the fourth
quarter of 1999.
The Company's inside sales department, located in Phoenix,
AZ was composed of two people, a VP of global sales and a
national sales manager. The VP of global sales was
responsible for establishing and maintaining relationships
and providing support to sales distribution networks world
wide, as well as monitoring U.S. domestic sales. The
national sales manager was responsible for developing new
accounts, as well as working locally with independent sales
representatives and distributors.
The independent sales representatives played an important
role in introducing this new technology to the market place and
developing sales leads. The
Company's independent sales representatives are each given
responsibility for a specific geographical territory.
The Company and its independent sales representatives
jointly advertise and participate in trade shows. The
independent salespeople are generally compensated through a
straight commission based on completed sales. Distributors
purchase machines at discounted prices based on volume and
then re-sell to physicians.
Item 2. Description of Property
MW is headquartered in leased premises at 6617 N.
Scottsdale Road, Suite 103, Scottsdale, AZ 85250. The
lease commitment is for three years and expires on December
31, 2002. The Company owns no real property.
MMC's offices are located at 65 West Easy Street, Suite
104, Simi Valley, CA 93065. The lease is for one (1) year
and expires on May 31, 2000 with an option to extend for an
additional two years.
Item 3. Legal Proceedings
MW is not a party to any material legal proceedings and to
MW's knowledge, no such proceedings are threatened or
contemplated. MW, however, was or is a party in the
following pending or threatened legal proceedings:
13
<PAGE>
1. an action in northern California based on a breach of
certain promissory notes by and against Microthermia
Corporation. This matter was recently settled and MW
received a license to certain microwave technology
patents as a result;
2. an action in southern California against the Company
by a Ken Karasuik in regards to a claimed contract
violation;
3. an action for federal trademark infringement against
the Company that was settled by the agreement not to
use the disputed trade name;
4. a threatened action by two former employees for
certain benefits claimed;
5. a potential action by the Company seeking remedies
against (2) former employees for breach of contract;
6. a potential collection action based on the breach of
certain promissory notes owed to the Company for which
the Company has not as yet taken action;
Management does not believe that any of these pending or
threatened actions have or will have a material impact on
the business of MW. At this time, neither the Company, nor
any of its subsidiaries, have any material bankruptcy,
receivership, or similar proceedings pending.
Item 4. Submission of matters to a Vote of Security
Holders
The Company held its Annual Shareholders Meeting on December
10, 1999. At this meeting, the shareholders voted on the
election of directors and approved the Incentive Stock
Option Plan. The following was the result of the election of
directors:
Votes Votes Votes Broker
Nominee For Against Withheld Abstentions Non-Votes
- --------------
Jan Wallace 5,852,290 250 0 0 0
Grace Sim 5,852,290 250 0 0 0
Elliot Smith 5,852,290 250 0 0 0
Jack Friedland 5,852,290 250 0 0 0
No other matters were submitted to our security holders for
a vote during the fiscal year ending December 31, 1999.
14
<PAGE>
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholders Matters.
Market Information
The Company received approval for listing on the Frankfurt
Stock Exchange on January 24, 2000 under the symbol MWMD.F.
The Company has been listed in the U.S. on the NASD, Over
the Counter, Bulletin Board (OTC BB) since April 1999 under
the symbol MWMD.
HIGH LOW
---- ----
1999**
First Quarter Not Trading*
Second Quarter $2.00 $1.00
Third Quarter $3.93 $1.75
Fourth Quarter $4.19 $2.66
- ---------------------------------------------------------------
*Trading of MW's stock did not begin until Second Quarter 1999.
** The prices are all "bid" prices.
As of December 31, 1999 there were 470 record holders of
the Company's common stock.
The Company has not previously declared or paid any
dividends on its common stock and does not anticipate
declaring any dividends in the foreseeable future.
Recent Sales of Unregistered Securities
The following is a list of equity securities sold by MW
within the past three years that were not registered under
the Securities Act.
MW issued to Dynamic 14,223,929 common shares in
consideration for the transfer by Dynamic to MW of all
shares and shareholders loans of each of MMC and P&H, and
the agreement of Dynamic to advance to MW a total of
$200,000, $50,000 of which has been paid. The shares of MW
issued to Dynamic have subsequently been distributed to the
shareholders of Dynamic on the basis of one common share of
MW for each common share of Dynamic. This issue of common
shares by MW to Dynamic was completed in compliance with
the exemption from registration provided by Section 4(2) of
the Securities Act of 1933.
MW also issued 2,500,000 common shares in a private
placement to accredited investors at a price of $0.75 per
share in compliance with Rule 506 of Regulation D of the
Securities Act as follows:
(1) 1,500,000 shares in October,1998;
15
<PAGE>
(2) 300,000 shares in March, 1999;
(3) 700,000 shares in June, 1999.
On July 14, 1999, MW entered into a convertible debenture
and warrant purchase agreement in which it agreed to sell a
total of $3,500,000 worth of convertible debentures in
compliance with the exemption from registration provided by
Rule 506 of Regulation D of the Securities Act. In
addition to the convertible debentures, each investor under
the debenture Purchase Agreement was entitled to warrants
in a proportional amount to their purchase of debentures.
The exercise price of the warrants is at a price of $2.75
per share. Of the $3,500,000 in convertible debentures,
only $3,000,000 were sold immediately. Between July 21 and
July 23, 1999, the investors exercised their conversion
rights under the debentures and converted $2,620,000 worth
of debentures into 2,386,750 shares of common stock. The
remaining $380,000 worth of debentures were converted in
November 1999 into 188,764 shares of common stock.. The
shares issued pursuant to the exercise of the debentures
were registered with the Securities and Exchange
Commission, effective November 3, 1999. The second
closing of $500,000 was allowed to expire without sale.
On July 20, 1999, MW also issued warrants to purchase
250,000 shares of common stock in MW to JW Genesis
Securities, Inc. as part of its fee for arranging the
convertible debenture financing. These warrants were also
issued in compliance with an exemption from registration
provided by Rule 506 of Regulation D of the Securities Act.
These warrants are exercisable at a price of $3.312 per
share at any time before 5:00 pm New York City time on July
20, 2004.
In December 1999, the Company offered 1 million shares of
common stock in a private placement exempt from
registration under Rule 506 of Regulation D of the
Securities Act at a price of $3.00 per share along with
warrants to purchase 100,000 shares at an exercise price of
$3.50 per share. This placement was closed on January 15,
2000 with all the shares sold to accredited investors.
Item 6. Management's Discussion and Analysis or Plan of
Operation
Over the past several months the Company has been faced
with a number of problems in bringing its new product to
market. In addition to the more traditional difficulties
of generating sales, its vice president of marketing and
national sales manager resigned in January, 2000. Following
this, the Company has been actively involved in hiring and
training new sales executives and personnel, but the
process has been slow and costly.
The Company delivered 36 machines to doctors prior to
December 31, 1999, however, because these deliveries did
not meet all of the criteria required for the recognition
of revenue by December 31, 1999, no revenue was recognized
on the Company's books in 1999. This along with other
complications from operations caused the Company to be
unable to include its audited financial statements with its
original 10K filing.
16
<PAGE>
Management believes that the adverse results the Company
experienced during the initiation of its sales activities
were primarily attributable to the following:
1. problems with the operation of its new microwave
system;
2. the learning curve associated with the specialized
selling and training requirements of the new microwave
technology;
3. the limited amount of internal resources and personnel
available to the Company.
Management believes that these difficulties will be
overcome. The Company intends to expand its management and
support personnel by employing a new C.E.O., C.F.O.,
marketing director, product and quality assurance manager,
three clinical nurses, and an inventory/shipping manager by
the beginning of the third quarter after it has obtained
necessary financing. At that time, the Company plans to
re-launch its product into the market.
The Company also anticipates expanding its clinical sites.
It is hoped that this expansion will provide the Company
with a number of peer review publications and clinical
white papers from medical luminaries in the field of
dermatology, pheblology, plastic surgery and other
specialties. It may also provide individuals who can be
called upon to lecture on the merits of MW's microwave
technology. Management expects to have one such article
written by Dr. Nicholas Lowe available in the coming weeks.
The Company anticipates that it will require additional
funds to continue operations in the second or third quarter
of this year. The Company completed a private placement of
1,000,000 shares of the Company's common stock in January
2000. Net cash proceeds from this placement were
$2,400,000. The Company intends to complete another equity
offering to fund operations until sufficient funds are
derived from sales revenues. For this purpose, the Company
will also be looking for a strategic partner or strong
national sales distribution organization to expand its
sales opportunities. The Company has been able to raise
funds through equity and debt offerings in the past,
however, the Company can offer no guarantee that it will be
able to raise sufficient funds in the future or that cash
flows from revenues will ever be achieved. Failure to
obtain additional financing or generate cash flows from
revenues would have a material adverse effect on the
Company.
Default on Note Payment by Purchaser of P&H
The Company sold the business of P&H Laboratories, Inc.
("P&H") to Microwave Communication Corporation ("MCC") on
March 9, 1998. Pursuant to the agreement of sale, MCC
signed a promissory note payable to P&H in which it was
obligated to pay $250,000 to P&H on August 1, 1998 and
$243,125 on March 31, 1999. P&H later assigned its rights
under this note to the Company.
The payment due on March 31, 1999 has not been received.
The Company re-negotiated a new payment schedule, but MCC
defaulted on this obligation in July. The Company
17
<PAGE>
has submitted documentation to the defaulting party to
restructure repayment of its obligations. The Company is
currently considering the enforcement of its claim through
litigation.
Prior Period Adjustments
In 1998, the Company's former parent, Dynamic Associates,
Inc., as part of its spin-off of MW, agreed to cancel MMC's
debt of $2,169,806. MW recognized this discharge of
indebtedness as earnings for the year ended December 31,
1998. After careful review, the Company changed this
entry on its books to a capital transaction, and thus
decrease net income by $2,169,806 and increased additional
paid in capital by a like amount.
Additionally, as part of this spin off, Dynamic agreed to
pay the Company $200,000 to help in its start-up. MW
originally entered this item as a receivable and revenue in
its general ledger. In 1999, Dynamic paid MW, $50,000
towards this debt. After careful review, the Company
changed this entry to a capital transaction, thereby
decreasing net income by $200,000 and reclassifying the
receivable into stockholders' equity.
Assets
Total assets of the Company increased from $1,204,482 on
December 31, 1998 to $4,117,108 on December 31, 1999, an
increase of $2,912,626 or 242%. The net change resulted
primarily from an increase in cash,
inventory and deposits. The Company's increase of
its cash resulted from its sale of
$3,000,000 in convertible debentures in July, the sale of
its common stock and short-term borrowings. The Company's
$1,667,258 increase in inventory resulted from the initial
production of its MW 2000 systems after
receiving FDA approval in October 1999. Deposits consisted
of the Company's payments of $1,350,000 to a
manufacturer to collateralize the production of future
MW 2000 systems.
Liabilities And Stockholders Equity
All of the Company's asset growth during the year ended
December 31, 1999 was funded by increased stockholders'
equity and short-term borrowings. Stockholders' equity was
$2,324,564 as of December 31, 1999, compared to $998,364 as
of December 31, 1998. The net increase in stockholders'
equity resulted primarily from the conversion of the convertible
debenture to common stock, the sale of common stock, the issuance
of stock warrants and options, and the exercise
of stock options, less the net loss from operations. In 1999,
Dynamic contributed $50,000 as part of the spin-off
agreement.
Common stock and additional paid in capital increased to
$9,310,303 as of December 31, 1999, which was up from
$3,441,528 as of December 31, 1998. This was primarily due
to the sale and conversion of the Company's outstanding
debentures into shares of common stock. In July 1999, the
Company sold convertible debentures for $3,000,000 to a
number of investors. All of these debentures were
converted into shares of common stock in 1999. The issuance
of stock warrants and options and the exercise of stock options
also contributed to the increase in capital.
18
<PAGE>
Other short-term borrowings were attributable to the
Company's borrowing against a line of credit.
Results of Operations
The Company began its initial production of the MW 2000
machines and delivered 36 of these
machines to clinical sites across the country. The Company
did not record revenue for these machines, as the revenue
recognition process was not complete as of December 31, 1999.
The Company's net operating loss increased to $4,592,575
for the year ended December 31, 1999, up from $1,936,570
for the year ended December 31, 1998, an increase of
$2,656,005, or approximately 137%. This significant
increase in the Company's net loss is primarily
attributable to interest expense of $2,010,880 and the cost
of bringing the Company's main product to market, including
ramping up the marketing and production aspects of the
business.
Selling, general and administrative expenses increased to
$1,905,239 for the year ended December 31, 1999, up from
$614,979 for the year ended December 31, 1998. This
reflects an increase of $1,290,260, or 210%. This increase
is primarily due to an increase in management fees of
$448,535, partially due to the hiring of four officers and
an increase in professional fees of $308,894. These expenses are
expected to continue at this level or higher into the
foreseeable future as the Company attempts to re-launch its
product.
Research and development cost increased by $108,424 to
$678,162 in 1999, up from $569,738 in 1998. These costs
relate to the development of new applications for the
Company's proprietary technology and clinical testing for
the existing products prior to FDA approval. These
expenses are expected to continue at this level or higher
into the foreseeable future as the Company continues to
investigate new applications of this technology, including
treatment of spider veins, wrinkling and stretch marks.
Interest expense for the year ended December 31, 1999 was
$2,010,880 compared to $0 for the year ended December 31,
1998. $1,000,000 of this expense was related to
the beneficial conversion feature, and $671,248 was related
to options and warrants granted and issued in connection
with the debenture. There was also an additional $300,000
paid as commissions related to the offering that were
charged to expenses as an adjustment to interest expense.
Despite initial efforts, the Company's sales have not met
management's expectations. Management believes the
Company will begin generating revenues late in the second
or during the third quarter of 2000 with significant
revenues being generated in the fourth quarter. The Company
has and continues to deal with a number of issues and
problems regarding the use and operation of the MW 2000 by
physicians and their staff. In response to these issues,
management has implemented a continuing internal evaluation
19
<PAGE>
process that has resulted in planned modifications and
upgrades to the MW 2000 machine, including such things as
warning labels, instruction manuals, on-site training, and
clinical support. Management believes that the MW 2000
machine will be ready for its re-launch in the late second
or early third quarter of 2000.
Liquidity and Capital Resources
The Company used cash of $4,889,391 in its operating
activities during the year ended December 31, 1999 as
compared to $1,061,887 during 1998. Included in the
Company's usage of cash is its increase in inventory and
deposits and other assets. The increase in inventory is
due to the initial production of the MW 2000 machines, thirty
six of which were shipped to clinical sites around the
country. The increase in deposits and other assets is
primarily caused by a $1,350,000 deposit placed with one of
the Company's vendors to collateralize work in process.
Significant non-cash items included in operating activities
includes $1,671,248 of interest expense related to the
beneficial conversion feature, warrants and options related
to the convertible debenture offering. Also included as a
non-cash item is the value of options granted to outside
individuals who performed services for the Company in the
amount of $262,553.
Cash flows provided by financing activities increased to
$4,409,974 for the year ended December 31, 1999 compared to
$1,171,062 for 1998. Financing activities in 1999 consisted
of a $3,000,000 convertible debenture offering, the sale of
equity securities and the exercise of stock options. The
Company also obtained a secured line of credit with a bank
from which the Company borrowed $425,000 as of December 31,
1999.
In 1999, the Company was primarily involved in product
development. The Company has only recently begun the
production of its product and will require substantial
additional financing in the future to continue the
operation of its business. Management
believes that it will be able to raise the money that is
necessary, but currently does not have this financing in
place.
Forward-Looking Statements
Many statements made in this report are forward-looking
statements that are not based on historical facts. Because
these forward-looking statements involve risks and
uncertainties, there are important factors that could cause
actual results to differ materially from those expressed
or implied by these forward-looking statements. The
forward-looking statements made in this report relate only
to events as of the date on which the statements are made.
Impact of the Year 2000 Issue
The "Year 2000 problem" arose because many existing
computer programs use only the last two digits to refer to
a year. Therefore, these computer programs do not properly
recognize a year that begins with "20" instead of the
familiar "19". The Company has not experienced any
difficulties as a result of this potential problem.
20
<PAGE>
Item 7. Financial Statements
The information required by this item is set forth in Item
13 of this Report.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
We have had no disagreements with our accountants on
accounting or financial disclosures. A change was made
in accountants as reported on the Company's 8K filed 11-10-99.
21
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant
The following are the names of the officers and directors
of MW, their present positions with MW and its
subsidiaries, and some brief information about their
background.
MW Medical, Inc. and Microwave Medical Corporation
Name Age Offices Held
- ---- --- ------------
Jan Wallace 43 Director, President
Grace Sim 39 Secretary, Treasurer, Director
Elliot Smith 67 Director
Jack Friedland 59 Director
Jan Wallace was President, Chief Executive Officer and a
director of MW at its inception in December, 1997. Ms.
Wallace resigned as President and Chief Executive Officer
effective October 1, 1998 and was then re-appointed on July
9, 1999 after the resignation of former President Paul
Banko. Ms. Wallace has been employed by Dynamic since
April 1995, when she was elected to the Board of Directors
and accepted the position of Chief Operating Officer. She
is currently a director and the President of Dynamic. Ms.
Wallace was previously Vice President of Active Systems,
Inc. a Canadian company specializing in SGML Software, an
ISO standard, in Ottawa, Ontario for the period from 1993
to 1994. Before that, she was President and Owner of
Mailhouse Plus, Ltd., an office equipment distribution
company which was sold to Ascom Corporation. She has also
been in management with Pitney Bowes-Canada and Bell Canada
where she received its highest award in Sales and
Marketing. Ms. Wallace was educated at Queens University in
Kingston, Ontario and Carleton University, Ottawa, Ontario
in Political Science with a minor in Economics.
Grace Sim has been the Secretary/Treasurer and a director
of MW since its inception in December 1997. She is also
currently the Secretary/Treasurer and a director of Dynamic
Associates, Inc., a public company. Ms. Sim joined Dynamic
in January 1997. Before joining Dynamic, Ms. Sim owned Sim
Accounting, an accounting consulting company in Ottawa,
Ontario, Canada. Between 1993 and 1994, she worked as the
controller with Fulline, an office equipment company and
with Mailhouse Plus Ltd. between 1990 and 1992. Ms. Sim
received her Bachelor of Mathematics with honors from the
University of Waterloo in Waterloo, Ontario.
Elliot Smith is a Director of the Company appointed on
September 16, 1999. Mr. Smith has held a variety of senior
management-level positions in some of the world's most
prestigious financial institutions during the past 40
years. Mr. Smith began a 29 year career with Prudential
Bache in 1954 when he was hired as a Registered
Representative in its Syracuse, New York office. By 1973,
Mr. Smith was elected to the Board of Directors of Bache &
Company Inc. In 1977, he was named Senior Officer of
22
<PAGE>
Commodity Division and Metal Company and in 1980, was
elected President of Bach Haley Stuart Metal Company Inc.
On leaving Prudential-Bache in 1983, Mr. Smith served as
Executive Vice President at R. Lewis Securities, Inc.,
located in New York City and from 1983 to 1995, was
President of Whale Securities Company, L.P., in New York.
Since 1995, Mr. Smith has served as President of the Equity
Division of Rickel & Associates, Inc., an investment
company. Mr. Smith has also been elected to the Boards of
The Pennington School and Jullians Corporation. He is a
former Member and Director of the Chicago Board of Options
Exchange; Governor of the American Stock Exchange (AMEX);
Governor and Chairman of the AMEX Commodities Exchange;
Director and Member of the Executive Committee of the
Securities Industry Automation Corp. and a past President
of the Association of Investment Brokers. Mr. Smith is
currently Executive Vice President, Investments at Oscar
Gruss & Son, Inc.
Jack Friedland is a Director of the Company appointed on
September 16, 1999. Dr. Friedland has operated a medical
office in Phoenix, Arizona for the past 25 years. Dr.
Friedland specializes in aesthetic plastic and
reconstructive surgery for both children and adults. Dr.
Friedland completed his undergraduate education at the
University of Wisconsin (Madison), received his Bachelor of
Science degree from Northwestern University in 1962 and
graduated from Northwestern Medical School in 1965 where he
was elected to the Alpha Omega Alpha Honor Medical Society.
Following his graduation from medical school, Dr.
Friedland's post-doctoral work included a surgical
internship (1965-1966) and surgical residency (1966-1970)
through New York University - Bellevue Medical Center. Dr.
Friedland was Surgery Resident and Chief Resident during
his surgical residency at N.Y.U. from 1966-1970, and Chief
Resident and Plastic Surgery Resident at the Institute of
Reconstructive Plastic Surgery, N.Y.U. Medical Center, from
1972-1974. Dr. Friedland maintains three board
certifications: National Board of Medical Examiners
(1966), American Board of Surgery (1971), and American
Board of Plastic Surgery (1975) and is a Fellow with the
American College of Surgeons. Dr. Friedland is also a
former President and current member of the Board of
Trustees of the prestigious American Society for Aesthetic
Plastic Surgery. Dr. Friedland has authored numerous
published books and peer-reviewed articles in his practice
specialty.
On July 9, 1999, Paul Banko resigned as President, director
and CEO of MW and on August 31, 1999, Robert Spertell,
resigned as MW's Chief Scientist. MW subsequently retained
Mr. Spertell as a scientific consultant.
Terms of Office
MW's directors are appointed for one year terms to hold
office until the next annual general meeting of the
stockholders or until removed from office in accordance
with the Company's by-laws. Officers are appointed by the
board of directors and hold office until removed by the
board.
23
<PAGE>
Significant Employees
The Company does not have any employees who are not
executive officers that are expected to make a significant
contribution to the business.
Section 16(a) Beneficial Ownership Reporting Compliance
The following persons have failed to file, on a timely
basis, the identified reports required by section 16(a) of
the Exchange Act during the most recent fiscal year.
- -------------------------------------------------------------------
Number Transactions Known Failures
of Late Not Timely To File a
Name and principal position Reports Reported Required Form
- -------------------------------------------------------------------
Jan Wallace, Director,
President, CEO 2 0 None
Grace Sim, Director,
Sec/Treas. 2 0 None
Elliot Smith, Director 2 0 None
Jack Friedland, Director 2 0 None
- -------------------------------------------------------------------
Item 10. Executive Compensation
Annual Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Other All
Annual Other
Com- Com-
pen- Restricted pen-
sa- Stock Options/* LTIP sa-
Name Title Year Salary Bonus tion Awarded SARs (#)payouts($)tion
- ---- ----- ---- -------- ----- ------ ------- ------- --------- ----
Jan Wallace Chairman 1999 $180,000 $ 0 0 400,000 0 0 0
Director
Grace Sim Director 1999 $ 96,000 $ 0 0 200,000 0 0 0
Secretary/Treasurer
Elliot Smith Director 1999 $ 0 $ 0 0 100,000 0 0 0
Jack
Friedland Director 1999 $ 0 $ 0 0 100,000 0 0 0
In March 1999, MW granted 400,000 options to Paul E. Banko,
400,000 to Jan Wallace, and 200,000 to Grace Sim. The
options allow the holders to purchase common shares of MW
for $1.00 per share. 50% of the options are exercisable
immediately and 50%
24
<PAGE>
require a one-year waiting period. A number of other employees
were granted options on similar terms. Subsequently, Paul Banko
resigned and an agreement was reached in which he retained only
200,000 of his original 400,000 options.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table provides , the beneficial ownership of
MW's common stock by each person known by MW to
beneficially own more than 5% of MW's common stock
outstanding as of December 31, 1999 and by the officers and
directors of MW as a group. Except as otherwise indicated,
all shares are owned directly.
Name and address Amount of Percent
Title of class of beneficial owner beneficial ownership of class*
- -------------- ------------------- -------------------- ---------
Common Stock High Octane Fund Ltd
HWR Services
Craigmuir Chamber
PO Box 71
Road Town,
Tortola BVI 990,608 5.4%
Common Stock Chase Manhattan Bank
4 New York Plaza
13th Floor
New York, NY 2,791,342 15.23%
Common Stock Bank Safe Deposit & Trust Co.
C/O Mellon Bank
Mellon Bank NA
Three Mellon Bank Center
Room 153-3015
Pittsburgh, PA 1,544,549 8.42%
The Company knows of no other person who is the beneficial
owner of more than five percent of the Company's common
stock.
Management
Common Stock Jan Wallace 500,000(1) 2.72%
(Chairman)
6617 N. Scottsdale Road, Suite 103,
Scottsdale, AZ 85250
25
<PAGE>
Common Stock Grace Sim 50,000(2) 0.27%
(Secretary/Treasurer)
6617 N. Scottsdale Road, Suite 103,
Scottsdale, AZ 85250
Common Stock Elliot Smith 34,000(3) 0.19%
(Director)
6617 N. Scottsdale Road, Suite 103,
Scottsdale, AZ 85250
Common Stock Jack Friedland 0(4) 0%
(Director)
6617 N. Scottsdale Road, Suite 103,
Scottsdale, AZ 85250
Common Stock All Officers and Directors 584,000 3.19%
as a Group (4 persons)
- ------------------------------------------------------------------------
* Based on 18,324,434 shares of common stock outstanding as
of December 31, 1999.
(1) Ms. Wallace also holds stock options to purchase
400,000 shares at a price of $1.00.
(2) Ms. Sim also holds stock options to purchase 200,000
shares at a price of $1.00.
(3) Mr. Smith also holds stock options to purchase 100,000
shares at a price of $2.62.
(4) Dr. Friedland also holds stock options to purchase
100,000 shares at a price of $2.62.
Item 12. Certain Relationships and Related Transactions.
Except as disclosed below, none of the following parties
since the date of MW's incorporation has had any material
interest, direct or indirect, in any transaction with MW or
in any presently proposed transaction that, in either case,
has or will materially affect MW.
* Director or officer of MW
* Proposed nominee for election as a director of MW
* Person who beneficially owns, directly or indirectly,
shares carrying more than 10% of the voting rights
attached to all outstanding shares of MW
* Promoter of MW
* Relative or spouse of any of the foregoing persons
During 1999, $180,000 was paid to the Company's President,
and $96,000 was paid or accrued to the Secretary/Treasurer.
For 2000, it is projected that the Company's President will
receive $16,500 monthly and the Secretary/Treasurer $8,800
per month.
26
<PAGE>
PART IV
Item 13. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Exhibits
- --------
None
Financial Statements
- --------------------
The Company's audited Financial Statements, as described
below, are attached hereto.
1. Audited Consolidated Financial Statements
(a) Report of Independent Certified Public Accountants
(b) Consolidated Balance Sheet
(c) Consolidated Statements of Operations
(d) Consolidated Statement of Stockholders'
Equity;
(e) Consolidated Statements of Cash Flows;
(f) Notes to Consolidated Financial Statements;
Exhibits
- --------
S-8 filing incorporated by reference, effective 12-14-99.
27
<PAGE>
May 12, 2000
MW Med-123199
Financial Statements and Report of
Independent Certified Public
Accountants
MW Medical, Inc.
December 31, 1999 and 1998
<PAGE>
C O N T E N T S
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET 4
CONSOLIDATED STATEMENTS OF OPERATIONS 5
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
MW Medical, Inc.
We have audited the accompanying consolidated balance sheet of MW
Medical, Inc. (a Nevada corporation) as of December 31, 1999 and
the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of MW Medical, Inc. as of December 31, 1999 and the
results of its operations and its cash flows for the year
December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note B to the consolidated financial
statements, the Company has cash flow constraints, an accumulated
deficit, and suffered recurring losses from operations. These
factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note B.
The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
/s/ Grant Thorton LLP
Los Angeles, California
April 13, 2000
<PAGE>
MW Medical, Inc.
CONSOLIDATED BALANCE SHEET
December 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 394,832
Restricted cash 500,000
Inventory 1,667,258
Deposits 1,350,000
Other current assets 165,341
------------
Total current assets 4,077,431
PROPERTY AND EQUIPMENT, net 21,104
OTHER RECEIVABLES, net 18,573
------------
$ 4,117,108
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,143,802
Short-term borrowings 425,000
Income taxes payable 2,400
Accrued expenses 118,242
Deposits 103,100
------------
Total current liabilities 1,792,544
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY
Common stock $.001 par value; authorized - 100,000,000
shares issued and outstanding, 18,374,443 18,375
Additional paid-in capital 9,291,928
Note receivable from former parent (150,000)
Accumulated deficit (6,835,739)
------------
Total stockholders' equity 2,324,564
------------
$ 4,117,108
============
The accompanying notes are an integral part of these statements.
4
<PAGE>
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1999 1998
-------------- --------------
Selling, general and
administrative expenses $ 1,905,239 $ 614,979
Depreciation and amortization 62,622 96,348
Research and development 678,162 569,738
------------- --------------
Net operating loss (2,646,023) (1,281,065)
Other income (expense)
Interest income 66,728 17,425
Interest expense (2,010,880) -
------------- --------------
(1,944,152) 17,425
------------- --------------
Net loss from continuing operations
before income taxes (4,590,175) (1,263,640)
Income tax expense 2,400 800
------------- --------------
Net loss before discontinued
operations (4,592,575) (1,264,440)
Discontinued operations
Sale of subsidiary - (477,862)
Operations of subsidiary sold
April 1, 1998 - (194,268)
------------- --------------
- (672,130)
------------- --------------
NET LOSS $ (4,592,575)$ (1,936,570)
============= ==============
Basic and diluted earnings per share
Net loss from continuing operations $ (0.27)$ (0.08)
Net loss from discontinued operations - (0.05)
------------- --------------
Net loss $ (0.27)$ (0.13)
============= ==============
Weighted-average number of common shares 16,912,700 14,462,285
============= ==============
The accompanying notes are an integral part of these statements.
5
<PAGE>
MW Medical, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Two years ended December 31, 1999
Note
Addit- receiv-
ional able Total
Common stock paid- from Accum- stock-
------------ in former ulated holders'
Shares Amount capital parent deficit equity
------ ------ ---------- ------ ------- -----------
BALANCE,
January
1, 1998 14,223,929 $14,224 $ 35,876 $ - $ (306,594) $ (256,494)
Issuance of
common
stock for
cash 1,500,000 1,500 1,009,513 - - 1,011,013
Subsidiary
adjustment - - 10,608 - - 10,608
Debt
forgiveness
and note
receivable
from former
parent - - 2,369,807 (200,000) - 2,169,807
Net loss - - - - (1,936,570) (1,936,570)
------ ------ ---------- ------ ------- -----------
BALANCE,
December
31, 1998 15,723,929 15,724 3,425,804 (200,000) (2,243,164) 998,364
Issuance of
common
stock,
net of
issuance
costs 1,000,000 1,000 673,974 - - 674,974
Beneficial
conversion
feature in
debentures - - 1,000,000 - - 1,000,000
Convertible
debentures
converted to
common
stock 2,575,514 2,576 2,997,424 - - 3,000,000
Stock
warrants
and
options
granted in
connection
with
debentures - - 671,248 - - 671,248
Retirement
of stock (1,185,000) (1,185) 1,185 - - -
Exercise
of stock
options 260,000 260 259,740 - - 260,000
Stock
options
granted
for
services - - 262,553 - - 262,553
Capital
Contrib-
ution
by former
parent - - - 50,000 - 50,000
Net loss - - - - (4,592,575) (4,592,575)
------ ------ ---------- ------ ------- -----------
BALANCE,
December
31, 1999 18,374,443 $18,375 $ 9,291,928$(150,000)$(6,835,739) $2,324,564
========== ======= =========== ======== =========== ==========
The accompanying notes are an integral part of these statements.
6
<PAGE>
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1999 1998
-------------- --------------
Cash flows from operating activities
Net loss $ (4,592,575) $ (1,936,570)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 62,622 134,925
Loss on sale of subsidiary - 477,862
Non-cash consideration in sale
of subsidiary - 303,125
Amortization of discount on
convertible debentures 671,248 -
Stock options granted for services 262,553 -
Interest expense related to
beneficial conversion feature 1,000,000 -
Bad debt expense 183,125 60,000
Changes in assets and liabilities
Increase in accounts receivable - (233,519)
Increase in other receivable (14,340) -
(Increase) decrease in inventories (1,667,258) 80,636
Increase in restricted cash (500,000) -
Increase in deposits and other
current assets (1,456,192) (109,157)
Increase in accounts payable 1,073,036 124,436
Increase in accrued expenses 117,204 -
Decrease in accrued expenses -
related party (132,714) -
Increase in deposits payable 103,100 34,775
Increase in income taxes payable 800 1,600
-------------- --------------
Net cash used in
operating activities (4,889,391) (1,061,887)
Cash flows from investing activities
Payment of loan-other - (3,915)
Purchase of equipment (16,034) (13,493)
Proceeds from sale of subsidiary - 410,534
-------------- --------------
Net cash (used in) provided
by investing activities (16,034) 393,126
The accompanying notes are an integral part of these statements.
7
<PAGE>
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Year ended December 31,
1999 1998
-------------- --------------
Cash flows from financing activities
Borrowings - former parent - 170,000
Proceeds from convertible debt offering 3,000,000 -
Principal payment from debt - (9,951)
Capital contribution from former parent 50,000 -
Borrowings from - related party - 100,000
Repayments of loans - related party - (100,000)
Proceeds from short-term borrowings 425,000 -
Sale of common stock 934,974 1,011,013
-------------- --------------
Net cash provided by financing
Activities 4,409,974 1,171,062
-------------- --------------
(Increase) decrease in cash (495,451) 502,301
Cash at beginning of year 890,283 387,982
-------------- --------------
Cash at end of year $ 394,832 $ 890,283
============== ==============
Supplemental information
Cash paid for interest $ 321,472 $ 9,824
Cash paid for income taxes $ 1,600 $ 800
Non-Cash Financing Activities:
- ------------------------------
The Company issued $3,000,000 of convertible debentures with
detachable warrants and a beneficial conversion feature. Included
in operating activities is $1,000,000 of interest expense related to
the beneficial conversion feature and $671,248 of interest expense
related to the discount on the debt. As of December 31, 1999, all
of the convertible debentures were converted to equity.
The Company stock granted options valued at $262,553 for certain
services.
The accompanying notes are an integral part of these statements.
8
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
- -----------------------
MW Medical, Inc. ("the Company") was incorporated under the
laws of the State of Nevada on December 4, 1997. The Company
is currently engaged in the development of technology relating
to the use of microwave energy for medical applications.
Through its subsidiary, Microwave Medical Corporation ("MMC"),
the Company produces and distributes medical devices utilizing
the Company's proprietary microwave technology.
Prior to April 1, 1998, the Company was also engaged in the
manufacturing of highly technologically advanced components and
subsystems for the communications and aerospace industries
through its subsidiary, P & H Laboratories ("P&H"). During
1998, the Company decided to discontinue doing business in this
industry, and consequently sold the net assets of P&H.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of
the Company; its wholly-owned subsidiaries, MMC and MMC's
German based subsidiary, Microwave Medical ("GmbH"), which was
formed in late 1997, and P&H through the date of the sale. All
significant intercompany balances have been eliminated in
consolidation.
Concentration of Risk
- ---------------------
The Company outsources the majority of its manufacturing to one
supplier. The reliance on a limited number of vendors is
subject to several risks, including economic disruptions and
price fluctuations, any one of which could have a material
adverse effect on the Company's business and results of
operations.
The Company maintains several accounts with established
financial institutions. The balances in these institutions
exceed insured amounts by approximately $683,000 at December
31, 1999. The Company believes there is little risk of loss
based on its use of high quality institutions.
Revenue Recognition
- -------------------
Revenue related to sales to end customers and to distributors are
recognized upon shipment, when the price to the purchaser is
fixed, there are not significant obligations for future
performance and the purchaser's obligation is not contingent on
resale of related merchandise.
9
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Deposits
- --------
Deposits represent payments made to a supplier, which performs
the majority of the Company's manufacturing. The supplier
requires that the Company maintain an ongoing deposit with the
supplier as collateral for goods in process.
Inventory
- ---------
Inventory, consisting principally of raw materials and
finished goods, is stated at the lower of cost (principally
using First-in, First-out) or market.
Research and Development Costs
- ------------------------------
Research and development costs are generally charged to
operations as incurred. Research and development costs that
have an alternative future use are capitalized. The total
amount of research and development costs captialized in 1999
was $107,528. No research and development costs were
capitalized in 1998.
Stock-Based Compensation
- ------------------------
The Company accounts for stock-based awards in accordance with
APB Opinion 25, "Accounting for Stock Issued to Employees" ("APB
25"), which requires that compensation cost be recorded based on
the intrinsic value of the award at the grant date and recognized
over the service period. The Company, in accordance with
Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-based Compensation" (SFAS 123), provides pro-forma
disclosures of net earnings (loss) and earnings (loss) per share
as if the fair value based method of accounting for awards had
been applied. Under the fair value based method, compensation
cost is recorded based on the value of the award at the grant
date and is recognized over the service period.
Estimates
- ---------
The Company's management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of
expenses during the year to prepare these financial statements
in conformity with generally accepted accounting principles.
Actual results could differ from these estimates.
10
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Depreciation and Amortization
- -----------------------------
Depreciation and amortization of property and equipment are
computed principally using the straight-line and accelerated
methods with useful lives ranging from 17 months to 8 years.
Income Taxes
- ------------
The Company accounts for income taxes under the asset and
liability method. Deferred taxes and liabilities are
recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which such taxable differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilties of a
change in tax rates is recognized in income in the period that
includes the enactment date. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the
deferred tax asset will not be realized.
Net Loss per Share
- ------------------
Basic and diluted loss per share is computed by dividing net
loss available to common stockholders by the weighted average
number of common shares outstanding during the periods
presented. The Company's diluted loss per share does not
include any common stock equivalents, as their effect is
antidilutive.
Stock options and stock purchase warrants to purchase shares on
common stock that were outstanding during 1999 which were not
included in the computation of diluted loss per share because
the impact would have been antidilutive were 1,745,000 and
600,000, respectively.
Reclassifications
- -----------------
Certain amounts in the 1998 financial statements have been
reclassified to conform to the 1999 presentation.
11
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE B - REALIZATION OF ASSETS
The Company has suffered recurring losses from operations and
may continue to incur operating losses for the foreseeable
future due to the significant costs anticipated to be incurred
in connection with manufacturing, marketing and distributing
its microwave products. In addition, the Company intends to
continue to conduct research and development activities,
including regulatory submittals and clinical trials to develop
additional applications for its technology. The Company
operates in a highly competitive environment and is subject to
all of the risks inherent in a new business enterprise.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts
shown in the accompanying balance sheet is dependent upon
continued operations of the Company, which in turn is dependent
upon the Company's ability to meet its financing requirements on a
continuing basis, to maintain present financing, and to succeed in
its future operations. The consolidated financial statements do
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the
Company be unable to continue in existence.
Management has taken steps which it believes are sufficient to
provide the Company with the ability to continue its operations
over the near term. In January 2000, the Company raised
$2,400,000 through the sale of common stock in connection with
a private placement memorandum. The Company also began to ship
its initial product at the end of the year and expects to
receive cash flows from such products within the near term. As
of the end of the first quarter of 2000, the Company has not
recognized any sales revenue. The Company expects that the
proceeds from those activities will be sufficient to fund
activities in the near term. The Company is actively pursuing
additional financing. However, there can be no assurance that
the Company will be able to complete any additional financing.
12
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE C - INVENTORY
At December 31, 1999, inventory was comprised of the following:
Raw materials $ 136,586
Finished goods 1,530,672
---------------
$1,667,258
---------------
Prior to December 31, 1999, the Company shipped approximately
$1,300,000 of the above inventory to selected customers.
Revenue related to these shipments was not recognized in 1999
due to the earnings process not being complete.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December
31, 1999:
Machinery & equipment $237,464
Other 33,562
----------
271,026
Less accumulated depreciation (249,922)
----------
$ 21,104
----------
NOTE E - NOTE RECEIVABLE RELATED PARTY
In 1998, the Company was spun off from its former parent,
Dynamics Corporation ("Dynamics"). As part of the spin-off
transaction, the Company issued stock on a one-for-one basis to
the shareholders of Dynamics. In return, the Company received
its subsidiaries, MMC and P&H, had debt forgiven in the amount of
$2.1 million and a note receivable from its former parent for
$200,000. As of December 31, 1999, $150,000 of the note
receivable remains unpaid and is included as an offset to equity.
13
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE F - SHORT -TERM BORROWINGS
The Company has a line of credit with a bank in the amount of
$500,000, of which $425,000 was outstanding as of December 31,
1999. The line of credit accrues interest at 8.5% per annum and
expires on June 12, 2000. The line of credit is collateralized
by a certificate of deposit in the amount of $500,000. The
certificate of deposit is included in restricted cash as of
December 31, 1999.
NOTE G - STOCKHOLDERS' EQUITY AND CONVERTIBLE DEBENTURES
During 1999, the Company offered and sold 1,000,000 shares of
common stock through a private placement memorandum dated
January 15, 1999, at a price of $.75 per share. Cash proceeds,
net of issuance costs, were $674,974. The Company granted stock
options to acquire 130,000 shares of common stock in exchange
for services related to the sale of such offering. These stock
options were valued at $84,563 and were charged to additional
paid-in-capital.
On July 14, 1999, the Company entered into a convertible
debenture agreement in which it agreed to sell to certain named
investors a total of $3,500,000 of 8% Convertible Debentures
due July 31, 2000. The convertible debentures were convertible
upon issuance into registered shares of common stock at 75% of
the fair market value of the stock when converted, or $2.75 per
share, whichever is lower. The debt matures and the conversion
option expires in July 2000.
Substantially all of the debentures were converted shortly
after issuance. The first closing of $3,000,000 occurred on
July 23, 1999. Concurrently, three of the investors agreed to
purchase the balance of $500,000 of convertible debentures upon
the registration of the common stock as required by a
registration rights agreement. The Company completed the
registration of the common stock in November 1999. As of
December 31, 1999 the remaining $500,000 of the debentures has
expired.
In connection with the agreement, the Company granted stock
purchase warrants to the investors of the debentures to acquire
up to 350,000 shares of common stock at a price of $2.75 per
share. As a result, the Company recorded a discount to
debentures of $252,000, which was charged to interest expense
upon conversion of the convertible debt. At December 31, 1999,
all warrants are exercisable and no warrants have been
exercised. The warrants expire in July 2002.
The Company allocated a portion of the convertible debentures
to the embedded beneficial conversion feature contained in the
convertible debentures and charged it to paid-in capital. The
portion allocated to the beneficial conversion feature totaled
$1,000,000, which was
14
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
charged to interest expense at the date of issuance.
15
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE G - STOCKHOLDERS' EQUITY AND CONVERTIBLE DEBENTURES -
Continued
The Company granted stock purchase warrants to the underwriters
of the debentures to purchase up to 250,000 shares of common
stock at a price of $3.3125 per share. The Company also
granted 150,000 options at $1.00 per share to certain
individuals as commissions related to the sale of the
debentures. As of December 31, 1999, all stock warrants and
50% of the options are exercisable and no warrants or options
have been exercised. These warrants and stock options expire
in July 2002 and September 2002, respectively. The Company
recorded debt issuance costs of $419,248 which were charged to
operations upon conversion of the convertible debt.
NOTE H - STOCK OPTIONS
In March 1999, the Company authorized 2,500,000 shares of its
common stock to be utilized in an incentive compensation program.
The Company granted 2,250,000 options in 1999. No options were
granted in 1998. The stock options vest and become exercisable
as follows: 50% at the date of grant and 50% one year from the
date of grant. The stock options were granted at the market value
of the Company's common stock on the date of grant.
At December 31, 1999, there were 250,000 additional common
stock shares available for grant under the Plan. A summary of
the activity related to this plan is as follows:
Weighted
average exercise
price Options
---------------- -------------
Balance at
December 31, 1998 - -
Options granted $1.39 2,250,000
Options forfeited $1.00 (245.000)
Options exercised $1.00 (260,000)
-------------
Balance at
December 31, 1999 $ 1.48 1,745,000
=============
16
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE H - STOCK OPTIONS - Continued
The following information applies to options outstanding at
December 31, 1999:
Options outstanding Options exercisable
--------------------------------- ---------------------
Wtd. avg. Wtd. avg. Wtd. avg.
Number remaining exercise Number exercise
Outstanding life (years) price exercisable price
----------- ----------- -------- ----------- ---------
Exercise
Price
$1.00 -
$3.31 $ 1,745,000 2.61 $ 1.42 872,500 $ 1.42
=========== =========== ======== =========== =========
The Company recognized compensation cost of $376,624 under the
Plan for the year ended December 31, 1999. Had compensation
cost for the Plan been determined based on the fair value of
the options at the grant dates consistent with the method of
SFAS No. 123, the Company's net loss and net loss per share
would have been:
Net loss As reported $ (4,592,575)
Pro forma $ (5,331,676)
Basic loss per share As reported $ (0.27)
Pro forma $ (0.32)
These proforma numbers may not be representative of future
disclosures. The fair value of each option grant is estimated
on the date of grant using the Black-Scholes method with the
following weighted-average assumptions used for grants in
1999: Risk-free interest rate of 6.50 percent, expected lives
of 5 years and volatility of 100%. The weighted-average fair
value of options granted during 1999 was $1.07.
17
<PAGE>\
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE I - INCOME TAXES
No provision for income taxes has been recorded as the Company
has incurred net operating losses from the commencement of
operations through December 31, 1999. At December 31, 1999,
the Company has net operating loss carryforwards available to
offset future taxable income for federal income tax purposes
of approximately $4,200,000; such carryforwards expire in
various years through 2019. The Company also has $3,450,000
of net operating loss carryforwards available to offset future
state taxable income that expires in various years through
2004. Deferred tax assets total approximately $1,800,000 and
include the effects of these net operating loss carryforwards
as well as certain expenses that are reported for financial
statement and income tax purposes in different periods. The
Company has provided a valuation allowance to offset all net
deferred tax assets due to the uncertainty of realization.
NOTE J - COMMITMENTS AND CONTINGENCIES
The Company has entered into non-cancelable operating leases
for property and equipment as of December 31, 1999. The leases
require monthly payments ranging from $1,800 to $4,900 and
expire at various dates through December 2002. The future
lease payments are as follows:
2000 $ 68,000
2001 61,000
2002 63,000
---------
$192,000
=========
The Company is involved in various lawsuits arising from its
normal operations. It is the opinion of management, in
consultation with counsel, that the outcome of such matters
will not have a material adverse impact on the Company's
consolidated financial position, results of operations, or
cash flows.
NOTE L - SALE OF P&H LABORATORIES
Effective April 1, 1998, the Company sold its subsidiary, P&H,
for total consideration of $653,659. The consideration
included $160,534 in cash, notes receivable of $493,125 and
management services valued at $240,000. As of December 31,
1999 the remaining outstanding note receivable and management
services balances were $243,125 and $60,000 respectively. The
payor of the note defaulted on the payments for the remaining
$243,125 and as of December 31, 1999
18
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE L - SUBSEQUENT EVENT
In January 2000, the Company sold approximately, 1,000,000
shares of common stock in connection with the private placement
memorandum dated December 15, 1999. Cash proceeds from the
sale, net of issuance costs, were $2,400,000.
19
<PAGE>
Smith & Company
A Professional Corporation of Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
Board of Directors
MW Medical, Inc.
We have audited the accompanying consolidated statements of
operations, changes in stockholders' equity, and cash flows of MW
Medical, Inc. and Subsidiaries for the year ended December 31,
1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of
operations, changes in stockholders' equity, and cash flows of
MW Medical, Inc. and Subsidiaries for the year ended December 31,
1998, in conformity with generally accepted accounting
principles.
/s/ Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
March 12, 1999
A Professional Corporation of Certified Public Accountants
10 West 100 South, Suite 700 * Salt Lake City, Utah 84101-1554
Telephone: (801) 575-8297 * Facsimile: (801) 575-8306
E-mail: [email protected]
Members: American Institute of Certified Public Accountants *
Utah Association of Certified Public Accountants
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MW Medical, Inc.
By: /s/ Jan Wallace
___________________________________
Jan Wallace, Director, President and CEO
Date: May 15, 2000
In accordance with the Securities Exchange Act, this report
has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
By: /s/ Grace Sim
___________________________________
Grace Sim, Director, Secretary and Treasurer,
Chief Financial Officer and Controller
Date: May 15, 2000
By: /s/ Elliot Smith
___________________________________
Elliot Smith, Director
Date: May 15, 2000
By: /s/ Jack Friedland
___________________________________
Jack Friedland, Director
Date: May 15, 2000
28
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 13, 2000, accompanying the
consolidated financial statements included in the Annual Report
of MW Medical, Inc on Form 10-K for the year ended December 31,
1999. We hereby consent to the incorporation by reference of
said report in the Registration Statement of MW Medical, Inc. on
Form S-8 (File No. 333-92701, effective December 14, 1999).
/s/ Grant Thornton LLP
Los Angeles, California
May 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN
THE COMPANY'S REGISTRATION STATEMENT ON FORM SB-2 FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 394832
<SECURITIES> 500000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1667258
<CURRENT-ASSETS> 4077431
<PP&E> 21104
<DEPRECIATION> 62622
<TOTAL-ASSETS> 4117108
<CURRENT-LIABILITIES> 1792544
<BONDS> 0
0
0
<COMMON> 18375
<OTHER-SE> 2342939
<TOTAL-LIABILITY-AND-EQUITY> 4117108
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2646024
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2010880
<INCOME-PRETAX> (4590175)
<INCOME-TAX> 2400
<INCOME-CONTINUING> (4590175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4592575)
<EPS-BASIC> (.27)
<EPS-DILUTED> (.27)
</TABLE>
